We appreciate your time, so we won’t waste time on history and other “interesting facts”, we will first identify the things you can find out on your own and then move on to the things Legarithm experts can help you with. We would also like to draw your attention to the fact that the information below applies only to tax residents of Ukraine
You can determine yourself whether you are covered by the norms of the Law No. 466-IX by answering the following questions:
– Providing binding instructions to the management bodies of the legal entity
– Negotiating and agreeing on material terms of agreements without the need for further approval by the management bodies of the legal entity
– Existence of a power of attorney for more than one year for execution of material transactions
– Execution of transactions with the bank accounts of the legal entity or the ability to block bank transactions
– The indication of the person as a founder when opening accounts
Most likely, if you have entered to this page, one of the above 3 points applies to you, but that’s not all you can easily determine for yourself.
In fact, the Law establishes two main obligations:
And while the first obligation applies to everyone without exception and we will return to its analysis later, the second obligation has exceptions and is often more interesting for our clients, so we will start with it.
So, you are exempt from CFC taxation if one of the following conditions applies to you:
If, however, after much calculation and deliberation with the CFC status, you have come to the conclusion that none of these conditions apply to your situation, read more about the taxes applicable to CFC profits.
This is where the biggest difficulty begins. According to the definition of the Law, the object of taxation is the part of the adjusted profit of a CFC, which is proportional to the part owned (or controlled) by the controlling person as of the last day of the reporting period.
The CFC tax formula is as follows: CFC tax amount = (CFC EBITDA + tax differences from controlled transactions (Article 39 of the TCU) – tax differences applied to avoid double taxation) * share of the controlling person * tax rate.
Yes, it looks really volumetric and complex. It is for this reason, at this stage we can no longer say that you can easily calculate the amount of tax to be paid.
That said, the tax rate may be as follows:
For individuals –
For legal entities – 18%, as a prime rate.
Here we should also clarify that the Law establishes the rule of “the first resident in the chain of ownership”, which means, for example, that if the right of a natural person to own a share in the CFC is mediated by the ownership of such natural person of a share in a legal entity which is a resident of Ukraine and is recognized as a controlling person, then such natural person will not be considered as a controlling person.
As mentioned above, if there are exceptions to taxation of CFCs, then there are no such exceptions to reporting, it must be filed by all persons who are controlling.
Reporting can be divided into:
As for the report, it consists of duly certified copies of the financial statements of the CFC. The report also indicates the name of the CFC, the amount of the controlling person’s share, the shareholding structure, the amount of income, adjusted profit of the CFC, the amount of dividends received by the CFC from Ukrainian legal entities, the amount of profit paid in favor of the controlling person.
The CFC report reflects transactions with related persons and companies from “offshore” jurisdictions. Of course, everything is not so simple in this part, because the controlling authorities have the right firstly to request an audit in case they have doubts about the veracity of your financial statements and secondly they can request primary documentation on the CFC operations, if there were controlled transactions.
And finally, about the saddest part.
The sanctions enshrined in the Law are really enormous, they concern reporting and are as follows:
✔️ What is a CFC and which companies are required to report on CFCs?
CFCs are investment funds that have a special status in Ukraine. The obligation to report on CFCs is imposed on management companies and treasuries of the fund.
✔️ What are the deadlines for CFC reporting?
The deadlines for submitting a CFC report are determined by law and depend on the type of fund and its activities. It is usually 30 days after the end of the reporting period for quarterly reports and 90 days for annual reports.